NEW YORK (Reuters) - Unfazed by
slumping oil prices and battering in the stock market, firms that
supply sand and guar gum for shale oil and gas companies are not
ready yet to call an end to a four-year boom spurred by hydraulic
fracturing technology.

Just putting on a brave face as a downturn looms? Perhaps, but
the optimism could also reflect confidence that the U.S. shale
industry is more resilient to retreating oil prices than
investors might think.

Oil prices have fallen 30 percent since late June and shares of
such firms as U.S. Silica Holdings and Hi Crush, which supply
sand to U.S. drillers, followed, dumped by investors anticipating
2015 output cuts and a drop in demand.

However, the service companies say business remains as strong as
ever. Furthermore, they point out that most of their supply has
been bought under long term contracts meaning next year should be
good too.

"We have not seen any data or had any discussions that indicate
lower demand for our sand," said Robert Rasmus, Co-Chief
Executive Officer of sand producer Hi-Crush after the company
reported record third quarter revenues this week.

Hi Crush's share price has fallen more than 40 percent since the
beginning of September, but Rasmus said almost 90 percent of the
company's sand output was sold for 2015.

His comments echoed those of other firms that supply sand and
other materials to oil drillers.

U.S. Silica Holdings, whose oil and gas sector revenues doubled
in the third quarter of this year, remains upbeat about its
outlook.

"We are actively engaged in conversations with our customers
about their future growth, and none has brought down their
estimated requirements," chief executive officer Bryan Shinn told
investors last week.

Demand for sand and the powder-like gum made from guar seeds has
soared in recent years. Both are used in what is known as
"completion" of an oil well, which occurs after drilling and
during fracking to keep open tiny fractures in shale rock to
allow oil to escape.

REBOUND HOPES?

Analysts say that in contrast to investors who have already
priced in a drop in 2015 output because of sliding oil prices,
service firms may still hope for a rebound and hold off with
cutting their outlooks.

Their optimism could also be a sign that the shale oil boom,
which has transformed U.S. energy industry since the end of last
decade, has enough momentum to keep output and service firms'
business rising next year and perhaps beyond even as some
drillers already start cutting their 2015 investment plans.

Industry experts say existing wells that have been drilled but
not yet fracked will keep output surging for months and many have
hedged next year's production well above current prices.

Furthermore, while U.S. oil prices hit a three-year low below $76
a barrel this week, several shale oil firms have indicated they
would remain profitable if prices stayed above $70.

That said, a further slide and protracted weakness could force
shale oil companies and their suppliers, many of which have yet
to weather a downturn, to pull back.

Some clouds are already appearing.

Diamondback Energy, an oil producer in the Permian Basin in
Texas, said this week that it would start 2015 with five drilling
rigs and wait to see what oil prices do before adding three more
rigs as earlier planned.

Other firms have also signaled potential 2015 spending cuts
should oil prices remain low or slide further, eventually
weighing on their suppliers' business.

Analysts are closely watching the oil rig count for any early
signs of a slowdown. The number of oil rigs in North America is
near all-time high, according to a weekly survey from service
firm Baker Hughes.

"It all depends how low oil prices go and how long they stay
there - and the jury is still out on that," said Judith Dwarkin,
director of energy research at ITG Investment Research in
Calgary. "We will be watching the rig deployment."

In the meantime, some firms still bet on a continued shale boom.
United Guar, a Houston-based firm that supplies guar gum to U.S.
drillers, plans to triple its processing capacity over the next
18 months, the company's chief executive Aamer Safraz said in an
interview, confident that prices will recover.

"I don't care if fracking slows in the United States," Safraz
said. "You have to take a longer term view."

(Reporting By Edward
McAllister; Editing by Tomasz Janowski)

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